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99 Phil. 841
Appeal from a decision of the Court of Tax Appeals. Celestino Co & Company is
a duly registered general copartnership doing business under the trade name of
Oriental Sash Factory". From' 1946 to 1951 it paid percentage taxes of 7 per
cent on the gross receipts of its sash, door and window factory, in accordance
with section one hundred eighty-six of the National Revenue Code imposing
taxes on sales of manufactured articles. However in 1952 it began to claim
liability only to the contractor's 3 per cent tax (instead of 7 per cent) under
section 191 of the same Code; and having failed to convince the Bureau of
Internal Revenue, it brought the matter to the Court of Tax Appeals, where it
also failed. Said the Court:
"To support his contention that his client is an ordinary contractor *
* * counsel presented * * * duplicate copies of letters, sketches of
doors and windows and price quotations supposedly sent by the
manager.of the Oriental Sash Factory to four customers who
allegedly made special orders for doors and windows from the said
factory. The conclusion that counsel would like us to deduce from
these few exhibits is that the Oriental Sash Factory does not
manufacture ready made doors, sash and windows for the public but
only upon special order of its select customers. * * * I cannot believe'
that petitioner company would take, as in fact it has taken, all the
trouble and expense of registering a special trade name for its sash
business and then orders company stationery carrying the bold print
'Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St.
Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors,
windows, sashes, furnitures, etc. used season-dried and kiln-dried lumber, of the best
quality workmanship' solely for the purpose of supplying the needs for
doors, windows and sash of its special and limited customers. One will
note that petitioner has chosen for its trade name and has offered
itself to the public as a 'Factory', which means it is out to do business,
in its chosen lines on a bigscale. As a general rule, sash factories
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There was a strong dissent; but upon careful consideration of the whole matter
we are inclined to accept the above statement of the facts and the law. The
important thing to remember is that Celestino Go, & Company habitually makes
sash, windows and doors, as it has represented in its stationery and
advertisements to the public. That it "manufactures" the "same is practically
admitted by appellant itself. The fact that windows and doors are made by it
only when customers place their orders, does not alter the nature of the
establishment, for it is obvious that it only accepted such orders as called for the
employment of such materials-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief "the appellant's position in
this Court:
But the argument rests on a false foundation. Any builder or homeowner,
with sufficient money, may order windows or doors of the kind manufactured
by this appellant. Therefore it is not true that it serves special customers only
or confines its services to them alone. And anyone who sees, and likes, the
doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from
appellant doors of the same kind, provided he pays the price. Surely, the
appellant will not refuse, for it can easily duplicate or even mass-produce the
same doors—it is mechanically equipped to do so.
That the doors and windows must meet desired specifications is neither here
nor there. If these specifications do not happen to be of the kind habitually
manufactured by appellant—special forms of sash, mouldings or panels— it
would not accept the order—and no sale is made. If they do, the transaction
would be no different from a purchasers of manufactured goods held is stock
for sale; they are bought because they meet the specifications desired by the
purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with the peculiar
specifications of a customer sizes not previously held in stock for sale to the
publicity thereby becomes an employee or servant of the customer,[1] not the
seller of lumber. The same consideration applies to this sash manufacturer.
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The Oriental Sash Factory does nothing more than sell the goods that it mass-
produces or habitually makes; sash, panels, mouldings, frames, cutting them; to
such sizes, and combining them in such forms as its customers may desire.
Appellant invokes Article 1467 of the New Civil Code to bolster its contention
that in filing orders for windows and doors according to specifications, it did not
sell, but merely contracted for particular pieces of work or "merely sold its
services".
"A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the
time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order,
and not for the general market, it is contract 16c a piece of work."
It is at once apparent that the Oriental Sash Factory did not merely sell its services
to Don Toribio Teddoro & Co. (To take one instance) because it also sold the
materials. The truth of the matter is that it sold materials ordinarily manufactured
by it—sash, panels, mouldings— to Teodoro & Co., although in such form or
combination as suited the fancy of the purchaser. Such new form does not divest
the Oriental Sash Factory of its character as manufacturer. Neither does it take
the transaction out of the category of sales under Article 1467 above quoted,
because although the Factory does not, in the ordinary course of its business,
manufacture and keep on stock doors of the hind sold to Teodoro, it could
stock and/or probably had in stock the sash, mouldings and panels it iised
therefor (some of them at least).
In our opinion when this Factory accepts a job that requires the use of
extraordinary or additional equipment, or involves services not generally
performed by it—it thereby contracts for a piece of work—filling special orders
within the meaning of Article 1467. The orders herein exhibited were not shown
to be special. They were merely orders for work—nothing is shown to call them
special .requiring extraordinary service of the factory.
The thought occurs to us that if, as alleged—all the work of appellant is only
to fill orders previously made, such orders should not be called special work, but
regular work. Would a factory do business performing only special,
extraordinary or preculiar merchandise?
Anyway, supposing for the moment that the transactions were not sales, they
were neither lease of services nor contract jobs by a contractor. But as the
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doors and windows had been admittedly "manufactured" by the Oriental Sash
Factory, such transactions could be, and should be taxed as "transfers" thereof
under section 186 of the National Revenue Code.
Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix,
JJ., concur.
[1] [2]With
all the consequences in Article 1729 New Civil Codte and Act No.
3959 (bond of contractor).
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